The Macroeconomics of European Agriculture

Summary

This book approaches the Common Agricultural Policy of the European Union from a macroeconomic perspective. This approach is based on recent empirical evidence from various sources indicating that the cost of present agricultural protection in Europe to consumers and taxpayers in terms of welfare lost and of output foregone is higher than has been commonly understood. This conclusion is supported by assessing the cost of farm protection by simple general equilibrium analysis that reflects the implicit discrimination involved against manufacturing, trade, and services in Europe. On the other hand, the costs imposed also on developing countries and on the emerging market economies of Central and Eastern Europe by denying their farm produce access to the European market are not taken into account. Whereas short-run partial equilibrium studies have generally indicated deadweight losses due to farm support equivalent to about 1% of GDP on average, long-run general equilibrium considerations are shown to raise the loss estimates to about 3% of GDP.

By lowering costs and prices, freer farm trade could deliver a substantial supply-side boost to the European economy and to the world economy as a whole in the long run, facilitating a noninflationary decrease in interest rates and unemployment in Western Europe and possibly also paving the way for export-led growth in Central and Eastern Europe in the years ahead. Even so, there may remain a cultural justification for continued public support for agriculture in Europe; if so, such support needs to be made more effective and more efficient than it is now.

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